Debit Note vs Credit Note: Key Differences

Businesses use debit and credit notes as formal accounting documents to manage purchase returns and sales returns. These notes indicate to the buyer or seller how much credit is available or how much is owed. Understanding the difference is important, especially for businesses that frequently handle both types of transactions.

Here’s a comparative overview of debit notes and credit notes:

Particulars	Debit Note	Credit Note
Who Issues It?	Issued by the buyer of goods.	Issued by the seller of goods.
Meaning	Sent by the buyer to the seller when goods are returned due to defects, excess supply, or other reasons. It mentions the reason for the return.	Issued by the seller to acknowledge acceptance of returned goods or to adjust the invoice amount.
When Issued	Only for credit purchases from the buyer’s perspective.	Only for credit sales from the seller’s perspective.
Impact on Accounts	Decreases accounts receivable in the seller’s books.	Decreases accounts payable in the buyer’s books.
Amount Reflected	Shows a positive amount.	Shows a negative amount.
Form	Acts as a type of purchase return.	Acts as a type of sales return.
Accounting Treatment	Recorded in the purchase return book.	Recorded in the sales return book.
Journal Entry	Supplier Account Dr.Purchase Return Cr.	Sales Return Account Dr.Customer Account Cr.
Exchange Document	Issued in response to a credit note.	Issued in response to a debit note.
Special Scenario	Seller may issue debit notes if the buyer was undercharged or extra goods were delivered.	Buyer may issue a credit note to acknowledge a received debit note.
Ink Used	Typically in blue ink.	Typically in red ink.

FAQ’s

1. What is a Debit Note?
A Debit Note is a document issued by a buyer to the seller to request an adjustment in the invoice, usually for returned goods, overbilling, or additional charges. It indicates that the buyer owes more money to the seller.

2. What is a Credit Note?
A Credit Note is a document issued by a seller to the buyer to acknowledge a reduction in the invoice amount, often due to returned goods, overcharging, or agreed discounts. It reduces the buyer’s liability.

3. Who issues a Debit Note and who issues a Credit Note?

Debit Note: Issued by the buyer.
Credit Note: Issued by the seller.

4. What is the main purpose of a Debit Note?
The main purpose is to formally notify the seller of a request for additional payment, adjustment, or return of goods.

5. What is the main purpose of a Credit Note?
The main purpose is to formally notify the buyer of a reduction in their payable amount due to returns, discounts, or errors in the invoice.

6. How does a Debit Note affect accounts?
A Debit Note increases the seller’s receivables or decreases the buyer’s liability.

7. How does a Credit Note affect accounts?
A Credit Note reduces the buyer’s payable or decreases the seller’s receivables.

8. Can a Debit Note and Credit Note be issued for the same transaction?
Yes. A Debit Note from the buyer can lead the seller to issue a corresponding Credit Note, confirming the adjustment in accounts.

9. Are Debit Notes and Credit Notes mandatory?
They are not legally mandatory but are widely used for proper accounting and record-keeping, especially for returns, adjustments, or disputes.

10. Do these notes affect GST?
Yes. Both Debit and Credit Notes are important for GST compliance, as they adjust the taxable value of the original invoice.